Tax Law

New 2025–2028 rules that put more money back in your pocket

The One, Big, Beautiful Bill Act introduces major changes for workers who earn tips or overtime, offering meaningful tax relief from 2025 through 2028. These updates are designed to simplify reporting, reduce tax burdens, and ensure workers keep more of what they earn.

No Tax on Tips

Under the new law, tips received by workers are no longer subject to federal income tax. This applies to all qualified tips reported to employers or reported directly by the worker. While tips remain reportable for wage and information-return purposes, the income itself is not taxed at the federal level. This change provides immediate financial benefit to workers in service industries who rely heavily on tipped income.

No Tax on Overtime

The Act also creates a new deduction for qualified overtime pay. Workers may deduct the portion of overtime that exceeds their regular rate—essentially the “extra half” in time-and-a-half. This deduction is available whether or not the taxpayer itemizes. The maximum annual deduction is $12,500 for single filers and $25,000 for joint filers, with phaseouts beginning at modified AGI of $150,000 ($300,000 for joint filers).

To qualify, overtime must be reported on a Form W-2, Form 1099, another official statement, or reported directly by the individual. Employers are required to report qualified overtime compensation on IRS or SSA information returns, and transition relief will be available for the 2025 tax year.

Why This Matters

For millions of workers, these changes mean more take-home pay and less tax complexity. Service workers, hourly employees, and anyone who regularly works overtime can expect meaningful savings. With proper reporting and documentation, taxpayers can take full advantage of these new benefits throughout the 2025–2028 period.